Summary by Anthony Cunha
Master of Accountancy Program
University of South Florida, Summer 2002
Benchmarking is a tool used by companies to identify areas of an operation which may need attention or correction. Benchmarking is done by comparing a companies own financial and operational information against that of a similar company or comparing internal operations of different departments within their own company. The idea is, if the numbers are off between the comparisons, then the company will be able to compare the differences in an effort to identify those factors that contribute to the discrepancies.
The authors talk about four steps involved in benchmarking.
1. Analyze your own company and gather the information you hope to benchmark.
2. Select the benchmark or benchmarks that you will be comparing your company or department against. Selection of the correct benchmarks is crucial due to the idea that an incorrect selection can result in inappropriate procedures or unrealistic comparisons.
3. Collect information on the benchmark that you decided on. The authors talk about several means to collect such information later in the article.
4. Analyze the data collected for both your own company or department and the data collected on the benchmark. This is where you will set your goals and determine policies and procedures which you hope to implement. It is important here that you do not set goals that are too high or too many goals so that they are unmanageable.
Where to Compare
When determining your benchmark, you can choose to go either internal or external in your search for comparison. Internal comparisons are often the easiest way to benchmark. You will need to decide which departments are performing the best, analyze their strategies, and then implement suggestions that you think would best assist the other units in the company in meeting those benchmarks. Internal comparison does lead to drawbacks. Complacency is a large drawback, where you are working toward benchmarks that may be far less than others in the industry because even your best departments are performing below industry standards.
The other source for benchmarking is external companies. Often external benchmarking is against the top competitors in the industry. This choice has major complications however. The most difficult of which is the collection of information on the benchmark or benchmarks.
Another form of benchmarking is to compare your company against the best in class. These are the top performing companies that share comparable functions or philosophies. A benefit of this approach is that it can often lead to policies and procedures that had not previously been seen in your own industry. This can often be a drawback as well though. Careful consideration must be given, due to the fact that practices that are successful in one industry do not always carry over to new industries with the same level of success.
Where to Get the Information
When gathering data for comparison on your chosen benchmark, it is often difficult to find reliable and complete information for external companies. The authors talk about many different ways to obtain the information needed. They suggest that you start at University libraries to see if the information you need is currently available. Also they talk about information clearing houses, companies that are in the business of collecting and selling information such as that needed for benchmarking. Other sources listed included consulting firms, industry or professional organizations, state or national government agencies, or industry specific publications.
Using the Benchmark Information
The authors talk about three phases to optimize benchmark results. The first phase is the identification of the issues. This is where you identify and summarize the issues that you hope to correct from you benchmark results. The second phase is the strategic planning phase. Here you should summarize your goals and objectives that you deem necessary to place you company in the competitive position you are working towards. This is also the phase where service companies should work to write their mission statement. The final phase is the tactical planning phase. This is where you break down the strategic planning into manageable pieces for follow up actions and delegate the responsibility to key individuals. Throughout the complete analysis you should continue to compare your results and practices to those of your benchmark. I feel the authors suggest this to allow you to continually improve your company through out not only your analysis process but also through the implementation and the evaluation process.
Campbell, A. 1999. Tailored, not benchmarked: A fresh look at corporate planning. Harvard Business Review (March-April): 41-44, 46,48, 50. (Summary).
Coburn, S., H. Grove and C. Fukami. 1995. Benchmarking with ABCM. Management Accounting (January): 56-60. (Summary).
Elnathan, D., T. W. Lin and S. M. Young. 1996. Benchmarking and management accounting: A framework for research. Journal of Management Accounting Research (8): 37-54. (Summary).